Transcript: Ahmed Chalabi on 'FNS'

CHRIS WALLACE, HOST, FOX NEWS SUNDAY: In just 66 days, the U.S.-led coalition in Iraq will hand over sovereignty to an interim Iraqi government. But despite the short time left, there is still all sorts of turmoil about who will be in that new government and how much power it will have.

Right in the middle of all the controversy, our first guest joins us from Baghdad, Ahmed Chalabi, a member of the current Iraqi Governing Council.

And, Dr. Chalabi, welcome. Good to have you with us.

AHMED CHALABI, IRAQI GOVERNING COUNCIL MEMBER: Thank you.

WALLACE: There are reports that the U.S. and the U.N. have decided to exclude almost all members of the current Governing Council when they create the new government to take power on June 30th, and that at the top of the list of those most likely to be excluded is you.

Have you heard from either U.S. or U.N. officials that you are out?

CHALABI: No. It is -- I have not heard anything. Neither has anybody in the Governing Council.

And the Governing Council consists of leaders of the Iraqi people. Nobody can exclude them from the government of Iraq.

WALLACE: Well, let me ask you about this, because the U.S. is relying on the U.N. envoy, Lakhdar Brahimi, to pick the new government. What do you think of the U.S. relying on the U.N. and Mr. Brahimi to help create the new Iraq?

CHALABI: The U.S. will follow the Iraqi transitional law, which Ambassador Bremer signed into law after the Governing Council agreed to it. And that, plus the CPA and the Iraqi Governing Council, choose the new government of Iraq.

And I think it's not a good start for a new, sovereign government of Iraq to start with violating the transitional administrative law.

WALLACE: What do you think of Mr. Brahimi? Do you think he's the right person to help advise in the creation of the new Iraq?

CHALABI: Mr. Brahimi is an Algerian with an Arab nationalist agenda. He already is a controversial figure in Iraq. He is not a unifying figure. He is supposed to be a unifying figure, so he can choose a government that will be effective. And I hope that he will work out a way to respond to the wishes of the Iraqi people that is commensurate with what they think they should have. And I believe that he should be more sensitive to the realities of Iraq.

WALLACE: Dr. Chalabi, I know that another mistake that you feel the U.S. is making is this so-called de-Baathification, reaching out to former members of Saddam Hussein's government and military.

Now, on Friday, the U.S. administrator, Paul Bremer, said that Iraq needs some members of the old government and that you have gone too far in purging them.

How will the Shiite community react if members of the former Sunni Saddam Hussein regime end up with big jobs?

CHALABI: First of all, the Iraqi people will reject entirely the participation of senior Baathists and those who have committed crimes in the government of Iraq at any level, and especially at the high level of government.

But I want to clarify that Ambassador Bremer has not changed the de-Baathification policy. What he announced is an agreement with the de-Baathification Commission and the Governing Council. We came to an agreement that we must speed up the appeals process. And that's all we said.

Today, he sent a letter to the Governing Council. Ambassador Bremer said in his letter that there is no change in the de- Baathification policy of the CPA and, in fact, the commitment to the de-Baathification is stronger than ever. And the Governing Council also issued a statement confirming this and saying that we are in agreement with Ambassador Bremer.

So there is no change in the de-Baathification policy.

WALLACE: Let's turn to Fallujah. President Bush is reportedly deciding this weekend whether to end the negotiations and, OK, launch an attack on the insurgents in that city.

If he does decide to do so, and if it turns bloody, as in almost all likelihood it will, what will be the reaction in the rest of Iraq?

CHALABI: There are no negotiations that are going on about Fallujah today. In fact, there are mediation efforts by some of the tribal leaders with the Iraqi Governing Council, and the CPA is also participating in those.

But the fighters, nobody can bind the fighters. They are former Baathists of high rank, and they are also terrorists and members of the Zarqawi's group and Al Qaida. There is no negotiation with them. They are not going to be bound by any appeals if they don't feel like it.

And any one of them, any group of them can upset any agreement, because they are not the ones that are being involved in the negotiations. They carry the guns and nobody is talking to them, and they should not.

Those are terrorists, former Baathists, who are threatening the new order in Iraq, and they are threatening democracy in Iraq, and they are killing American soldiers. This is not the way to deal with this issue.

The issue of terrorism must be dealt with firmly. We must work very hard to avoid loss of life. We must work very hard to avoid civilian casualties. And those terrorists and Baathists are holding the people of Fallujah hostage. We must release the hostages.

WALLACE: Dr. Chalabi, when this war began, you were a favorite of the Pentagon and of Vice President Cheney. Your group still gets -- although there's talk about cutting it off -- I think it's $340,000 a month for intelligence gathering.

But there are increasing complaints here in -- among Bush administration officials that you gave the U.S. bad information into the lead-up to the war, that your organization coached defectors to tell horror stories to U.S. intelligence, that basically you sold the U.S. a bill of goods.

CHALABI: Of course these are false charges. They were hyped up by people, journalists with an agenda and people who have tried to do blame shifting.

I think this story should be put to rest after the revelations of Mr. Woodward and his book. He clearly lays the responsibility where it ought to be on the issue of weapons of mass destruction. And he clearly states who gave the United States government information and who was in charge in the United States of the information and its analysis.

He does not say anything about us. In fact, he says the negative, that others -- many people in the United States did not believe we gave them false information, or, for most of the people who were interviewed, did not even say that this information had any significant impact on the decision of the U.S. to go to war. The U.S. has...

WALLACE: Dr. Chalabi, let me give you one example that people cite, however. And this is the question of Saddam Hussein putting biological weapons labs on trucks.

According to U.S. intelligence officials, the two prime sources for that information were people that your organization provided. One of them turned out to be a known fabricator, and the other, the prime source, who was code named Curveball, just turned out to be the brother of one of your top lieutenants.

CHALABI: That's a lie. There is no Curveball that is the brother of any member of the INC leadership at the high level or at the low level. We don't know who he is, we never heard of him, and we have nothing to do with this information, and we never saw him.

As for the other person, we presented him to the United States and they took his information.

CHALABI: We did not coach him. They met him a few times, and they decided whether to take this information or not. We did not press him on them. We thought that it may be useful for them to talk to him.

But that is not how it happened. The point is, this Curveball incident is an example of the blame-shifting and the lies that have been spread about our role in this.

WALLACE: Dr. Chalabi, finally, I think a lot of people in this country are surprised where we find ourself, both in terms of the military situation and the political, one year in.

What, if anything, do you think that the U.S.-led coalition has done wrong so far, and what do they need to do?

CHALABI: The Iraqi people do not understand occupation. The Iraqi people do not want to be occupied, and the mistake initially was in not creating a provisional Iraqi government that would be the ally of the United States in the war against the terrorist, fascist Baathist regime of Saddam Hussein.

WALLACE: Dr. Chalabi, we're going to have to leave it there. Thank you so much for joining us today.